Real Estate 2011: House Prices in Chicago and the Suburbs

THE NEW NEW RULES OF REAL ESTATE: Eleven years ago, Chicago offered a guide to making the most of the sizzling-hot housing market. What a difference a decade makes. Now, confronting the realities of today’s pinched economy, local real-estate pros weigh in with the best strategies for buying or selling a home. PLUS: Our annual survey of housing prices in nearly 300 neighborhoods and towns

Low-ball offers are insulting—but don’t get insulted.
The dark underside of a marketplace that rewards competitive pricing is the low-ball offer, the scourge of many a home seller. Some cocky buyers, their heads filled with images of sellers desperate to get out of their homes, see the chance to snare a once-in-a-lifetime bargain and swagger in with startlingly low offers. It’s their version of the seller’s “let’s just see” game.

How low the ball can go has changed as house prices have slumped. At the height of the market five years ago, Siciliano recalls, “you offered 5 to 7 percent less than what they were asking. Ten percent less was blasphemous”—and sale prices frequently wound up above what the sellers had asked. Now, he says, it’s common to see a first offer at 10 or 15 percent below the asking price, and sometimes it’s even lower. While buyers certainly have the right to try to puncture what they believe to be an inflated price, throwing out a very low price just to see if it sticks is not a smooth move, he says. Guzman agrees. “If you want to negotiate a good deal,” she advises, “start out amicably.”

Remember, many sellers are already digesting the idea of losing substantial money on the sale. Antagonizing them with an offer that makes that loss even greater could sour them on working with you. “Don’t make the sellers hostile,” Guzman says.

Nevertheless, the low-ball offers continue, so Owen encourages her sellers to maintain a Zen-like calm in the face of a ridiculous first bid. “Any offer is a starting point,” she says. “You might be surprised by it, but don’t take it personally.” If the offered price isn’t flat-out absurd and the terms other than price are good—the financing and closing date, for example—Owen advises sellers to counter conservatively to show that they are willing to negotiate but not to give the house away.

“There’s a distinction between a smart buyer and a bottom feeder,” she says. The smart buyer may start lower than expected but then come up to a more reasonable price range; the bottom feeder is scavenging for steals and won’t respond to a conservative counteroffer because there is no whiff of desperation in that.

RULE NO. 5

Honesty is the best policy.
It’s as true in real estate as it is in politics: There are no secrets anymore. Buyers have access to an enormous amount of information. On the Internet, details about what a home last sold for and how much it now might be worth are usually only a series of clicks away. Where sellers might once have coyly declined to say what they paid for a house, sellers and buyers can now assume that each has most or all of the information the other has. “I tell my sellers that the buyers are going to look at all the same facts I’ve [given] them in the listing presentation,” Owen says. “There’s no way to hide it.”

Some sharp real-estate agents have been capitalizing on the newfound transparency, playing to buyers’ understanding of the market. They may trumpet the size of the bargain, such as the listing for a St. Charles home sold in June that announced the asking price of $1.249 million was “$1 million less than seller paid in ’06!” A Lincoln Park home’s listing sheet blared that the $1.75 million asking price was well below both the original asking price of $3.65 million and the appraised value of $2.5 million. For another residence—this one in Lake View—the agent confessed that the home “was overpriced for much too long.” Those revelations might spark pangs of humiliation in the sellers, but at the same time, they send a clear signal to buyers: Game on.

Honesty is essential in another aspect of the home-selling process. When first meeting with a real-estate agent, sellers should be up-front about their financial status. As Parent explains, there are markedly different routes for selling a home that is in or near foreclosure, one that will be a short sale—where the lender agrees to let the homeowner sell for less than the amount owed on the mortgage—or one that will be sold conventionally. Many agents have trained in the differences, and they will ask potential sellers tough questions, such as when they last made a mortgage payment and whether their homeowners’ association dues are paid up. Sellers who aren’t current on one or the other then get a fuller examination of the financial status of their home.

Parent acknowledges that some sellers become annoyed when asked these things. “It’s like going to the doctor and being asked if you smoke or drink,” he says. But, as with doctors, real-estate agents need to know the risk factors so they can respond accordingly.

RULE NO. 6

Shop the distressed properties.
Distressed properties (foreclosures and short sales) are in virtually every neighborhood and every price range now, and most experts forecast that their numbers will swell once banks better understand how to deal with them—and as more homeowners who have been struggling financially finally let go.

To many sellers, distressed properties might seem like sorry substitutes for a well-maintained home that can be bought without lots of extra paperwork. That may be true, but distressed properties are the competition now, no matter how nice your house is. Ignore them at your peril.

And, as Guzman points out, knowledge of the local landscape can help sharpen your own marketing efforts. If, for instance, the foreclosure down the street has appliances missing, your listing sheet can highlight the difference. It wouldn’t make a direct jab at the other home, Guzman says, but would say something positive about your own residence, such as “well-applianced kitchen.” (Rely on a real-estate agent to tell you what can and can’t be said in a listing.)

As for homebuyers, many of them have found great bargains in distressed properties, leveraging the low price to step up to a larger or better-located home. But distressed properties have downsides, such as the expense of restoring a neglected house and the long and often tortuous process of getting an offer accepted by a bank or other institutional seller. “It goes to your tolerance for anxiety,” Siciliano says. “If you have the ability to sit around and wait for a long time, if you have a place to live and don’t have to get out, you could get a smoking deal in a distressed property.” (Foreclosures frequently sell for about half their peak market value; the discount on short sales varies based on what the seller owes and what the bank will accept, but it often decreases by double-digit percentages below the market value.)

If, on the other hand, you need to move soon or have very specific location demands—or you’re simply not the patient type—a distressed property may not be for you. “The negotiations are kind of crazy and drawn out,” Siciliano acknowledges. “You can wait months for a response [to your offer], and then it might be negative, and you’re back where you started, without a house. I’ve had three or four people try it and then say, ‘I’m done. I want a good old-fashioned resale.’”

RULE NO. 7

Buy for the long term.
If the collapse of the housing market taught us anything, it’s that a home shouldn’t be used as a short-term investment. “Everyone thought for a while that there was a guarantee that a home’s value would go up,” Burtt says. “Now people realize that it’s a fluctuating market, like any investment.” Flipping homes for quick profit may have been fun back in the boom years, but in this moribund economy, it’s time to go with a buy-and-hold strategy.

That entails looking at a property not as it is today but as it will be ten or more years down the line, when a family’s needs may have changed. “Ask yourself, ‘Can I grow into this house?’” counsels Burtt. “‘What space will I need if my family grows?’”

It’s even more important to be realistic about what you can and cannot afford. “People are reviewing,” Burtt says. “Do they need to spend so much on their home? Do they need to have quite as much in terms of square footage or amenities as they once thought? Does every child need a separate bathroom, or can they be more flexible on that?” In today’s subdued real-estate market, ratcheting down expectations—whether about the number of bathrooms or how much a home is really worth—is an essential tactic.